[Senate Hearing 110-783]
[From the U.S. Government Publishing Office]
S. Hrg. 110-783
COURTING BIG BUSINESS: THE SUPREME COURT'S RECENT DECISIONS ON
CORPORATE MISCONDUCT AND LAWS REGULATING CORPORATIONS
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JULY 23, 2008
__________
Serial No. J-110-108
__________
Printed for the use of the Committee on the Judiciary
----------
U.S. GOVERNMENT PRINTING OFFICE
48-144 PDF WASHINGTON : 2008
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Stephanie A. Middleton, Republican Staff Director
Nicholas A. Rossi, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Cornyn, Hon. John, a U.S. Senator from the State of Texas,
prepared statement............................................. 44
Durbin, Hon. Richard J., a U.S. Senator from the State of
Illinois, prepared statement................................... 46
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 61
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 3
WITNESSES
Bartholet, Elizabeth, Morris Wasserstein Professor of Law,
Harvard Law School, Cambridge, Massachusetts................... 7
Millett, Patricia Ann, Partner, Akin Gump Strauss Hauer & Feld
LLP, Washington D.C............................................ 10
Schultz, Osa M., Cordova, Alaska................................. 4
QUESTIONS AND ANSWERS
Responses of Elizabeth Bartholet to questions submitted by
Senators Specter and Kohl...................................... 21
Responses of Patricia Ann Millett to questions submitted by
Senator Specter................................................ 24
SUBMISSIONS FOR THE RECORD
Alaska Community Action on Toxics (ACAT), Pamela K. Miller,
Executive Director, Anchorage, Alaska, letter.................. 30
Bartholet, Elizabeth, Morris Wasserstein Professor of Law,
Harvard Law School, Cambridge, Massachusetts, statement........ 36
Cooper, Gwen, Fort Collins, Colorado, letter..................... 43
Exxon Valdez, maps............................................... 49
Goldman, Alvin L., Professor Emeritus College of Law, University
of Kentucky, Lexington, Kentucky, letter....................... 51
Henley, Phyllis, letter.......................................... 53
Hopkins, Jack, Cordova, Alaska, letter........................... 54
Kendall, Douglas, Founder and President, and Elizabeth Wydra,
Chief Counsel, Constitutional Accountability Center,
Washington, D.C., letter....................................... 55
Kopchak, Rj, Commercial Herring Fisherman, Cordova, Alaska,
letter and attachments......................................... 58
Lynch, Mary B., Dixon, New Mexico, letter........................ 69
Merritt, Leander, letter......................................... 75
Millett, Patricia Ann, Partner, Akin Gump Strauss Hauer & Feld
LLP, Washington D.C., statement................................ 76
Mullins, Sheelagh, Cordova, Alaska, letter....................... 88
Munro, Mark, Homer, Alaska, letter............................... 90
National Senior Citizens Law Center, Simon Lazarus, Public Policy
Counsel, Washington, D.C., letter.............................. 91
Ott, Riki, PhD, Cordova, Alaska, letter.......................... 96
Pacheco, Janda, letter........................................... 100
Rackley, Davis C., Silverdale, Washington, letter................ 101
Rosier, Amy, Consumer Protection, Washington, D.C., statement.... 102
Samuels, Jocelyn, Vice President for Education & Employment,
National Womens Law Center, Washington, D.C., statement........ 113
Schultz, Osa, Cordova, Alaska, statement and attachments......... 116
Smith, Steve, Cordova, Alaska, letter............................ 162
Solmonese, Joe, President, Human Rights Campaign, Washington,
D.C., statement................................................ 164
van den Broek, Rochelle, Executive Director, Cordova District
Fishermen United, Cordova, Alaska, letter...................... 169
Veale, Zed, Flagstaff, Arizona, letter........................... 172
Vlasoff, Travis, Native Village of Tatitlek, Tatitlek, Alaska,
statement...................................................... 173
United Fishermen of Alaska, Mark Vinsel, Executive Director,
Juneau, Alaska, letter......................................... 175
Wills, Andrew, Old Inlet Bookshop, Mermaid Cafe & B&B, Homer,
Alaska, letter................................................. 177
Young, Donna, Fairfax, Iowa, letter.............................. 179
COURTING BIG BUSINESS: THE SUPREME COURT'S RECENT DECISIONS ON
CORPORATE MISCONDUCT AND LAWS REGULATING CORPORATIONS
----------
WEDNESDAY, JULY 23, 2008
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:08 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Whitehouse, Specter, and Cornyn.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Good morning, and I apologize for the
delay. I am delighted to have Senator Specter, who is one of
the most senior members of this Committee, a former prosecutor
here; and Senator Whitehouse, who is a former Attorney General
and former Federal district attorney.
This is our second hearing in as many months to highlight
how the Supreme Court's decisions affect Americans' everyday
lives. We see the economy worsening; Americans are struggling
to put food on the table and gas in their cars, and money, if
at all possible, in their retirement funds. And I think most
Americans are not aware of some of the decisions that have come
down by the Supreme Court that, instead of protecting them from
financial injuries, they have done just the opposite.
At last month's hearing, I noted the tragic decision in
Lilly Ledbetter's pay discrimination case. The Supreme Court
overturned her jury verdict. They created a bizarre
interpretation of our civil rights laws. Basically, her
employer, who had discriminated against her for years, kept
that hidden--and she did not find out about it until after she
had left the employment. She sued to recover payments for the
discrimination, but as many you know, it was a case where male
employees for lesser work were paid considerably more. She sued
and, of course, got a recovery in court, and the Supreme Court
overturned that, saying, well, you sued too late. Of course,
the fact that it had been hidden was why she was so late. It
basically was saying to employers, go ahead and discriminate,
just as long as you make sure you keep it hidden so they cannot
do it--which is not what was ever intended by the Congress nor
in the years of interpreting these cases.
Now we are going to look at a few others where big
businesses have been rewarded. In the Stoneridge case, the
Supreme Court held that pension funds and other investors in
companies ruined by fraudulent managers, like Enron, cannot
recoup the money they lost from those who knowingly facilitated
the fraud. They are sending a signal, Now, look, don't go rob
banks because they can go to jail for that; just defraud people
because they cannot recover from you. And that leaves everyday
Americans with no place to go.
More than a decade ago, the Exxon Valdez was run aground by
a drunk captain, somebody with a history of drinking problems,
leading to one of the worst environmental disasters to reach
American shores. And the tragedy of it was that it was a
totally preventable environmental disaster. A jury determined
that Exxon Mobil knowingly and repeatedly allowed a relapsed
alcoholic to operate a ship filled with oil through the Prince
William Sound. They found that for destroying the livelihood of
thousands of Americans, they should be punished by paying at
least a small fraction of its annual profits.
Exxon Mobil paid millions to fight that, all the way up to
the Supreme Court. It paid off for them. The Supreme Court
protected them, read into the Constitution a protection for
corporations that simply does not exist in its text or its
intent. A very activist Supreme Court helping out Exxon Mobil.
In his powerful dissent, Justice Stevens concluded ``that
Congress, rather than this Court, should make the empirical
judgments'' contained in the Court's decision that slashed the
jury award by $2 billion. Incidentally, that is just one-tenth
of 1 percent of Exxon Mobil's revenue in a year. It is the
equivalent to an ordinary American who may have created a
terrible disaster in a town, and they say, well, here, we are
going to give you a $5 parking ticket. It is about the same
thing. And if Congress had wanted to cap punitive damages for
disasters that impact thousands of Americans, of course, we
could have done so. We did not, specifically did not. This is
another line of cases where the Supreme Court has misconstrued
congressional intent.
Then the Supreme Court has eroded the role of civil juries
and shielded corporations from accountability through
arbitration decisions. When we passed the Federal Arbitration
Act, it was thought to provide sophisticated business interests
an alternative venue to resolve their disputes. It was not
intended to preempt State law or be a hammer for corporations
to use against individual customers. It was never intended to
be used for employment cases, but that is what they are trying
to do, and large corporations have benefited from these
expansive rulings, and they have inserted binding mandatory
arbitration clauses in nearly every contract they draft. As a
result, millions of Americans are being found to have somehow
waived their constitutionally guaranteed Seventh Amendment
right to a jury trial, oftentimes either because they had no
choice or without even knowing it.
There are no juries of one's peers in the arbitration
industry. There is no appellate review. There is no
transparency, and some would argue no justice.
A jury found for the victims of the Exxon Valdez disaster.
A jury found for Lilly Ledbetter. But the Supreme Court
displaced those judgments with their own. In so doing, it has
removed the compensation initially awarded to these victims,
and it prevents other victims from redress.
Worse than that, by doing this they do not deter
corporations from the kind of conduct that created this in the
first place. And the significant financial consequences is a
deterrent that corporations tend to understand, and that has
been taken off the table.
So I look forward to the testimony of our witnesses and
thank them for traveling to be with us today. I know many came
from Alaska, and I note that several others affected by the
Exxon Valdez disaster came here today, and I appreciate your
coming here.
Senator Specter.
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Thank you, Mr. Chairman. I think it is
very useful for this Committee to take the congressional lead
in commenting on Supreme Court decisions, and that is
especially true where we are dealing with matters which we can
change by legislation.
The commentators have a great many opinions. Jeffrey Rosen
has written in the New York Times that the Supreme Court has
taken a turn favoring big business. Linda Greenhouse has
written another article in the New York Times saying that while
big business has pointed to some victories in some cases, their
decision for older workers was a turnabout and a surprise. And
even where you have the Valdez case involving punitive damages,
you have the Supreme Court saying that it is not the exclusive
remedy where preemption is a very big issue with the arguments
being made that the Federal Government has preempted the field
from state action.
But I would like to see the Congress move ahead on the
Ledbetter case. Senator Leahy has described Ledbetter. A very
short statute of limitations was held to bar a woman from
asserting her rights to equality and employment opportunities.
But as Senator Leahy has noted, she did not know she had a
claim. How can you pursue a claim if you do not know that the
claim is in existence? Ledbetter is a statutory matter, and we
can act on it. And that is something the Congress ought to move
ahead on. And showing due regard for the independence of the
judiciary, if it is a constitutional matter, Congress cannot
change it except by constitutional amendment. The issues become
more difficult where the Court is acting on constitutional
grounds.
We have had quite a series of events on the fundamental
right of habeas corpus in this country. In the Rasul case, the
Supreme Court said that habeas corpus was a constitutional
right. The Supreme Court also said that habeas corpus was
provided for by statute. Then the District of Columbia Court of
Appeals in the Boumediene case made a distinction which I
thought was not only a stretch but just wrong, saying that the
Rasul case was decided solely on statutory grounds. And then if
it is on statutory grounds solely, Congress has the authority
to change it. And we did legislate to take away habeas corpus.
I think it was a bad decision by the Congress, and my amendment
was defeated 51-48. But there you have a lengthy opinion by
Justice Stevens going back to the analysis of habeas corpus to
John at Runnymede, 1215, and the Magna Carta. And he also did
describe the statutory remedy of habeas corpus.
But it is a very tortured reading of Rasul to say that the
Court did not put habeas corpus on constitutional grounds. And
then the D.C. Circuit, I think, just ignored their duty to
follow the Supreme Court. And the Supreme Court denied cert.
There was a lot of speculation as to what was going on, and
then when it came out about how bad these Combat Status Review
Boards were, there appeared to be a change in the attitude of
some of the Justices, and the petition for re-argument was
granted. It takes five votes, four for cert.
So it is a healthy thing in our society to have this
Committee take a look at these issues. So I commend you, as
usual, Mr. Chairman, for going into a very important subject.
Chairman Leahy. Well, I appreciate your being here and--
Senator Specter. I want to make one other comment. All
these empty chairs does not mean that people are not very
concerned about this issue or about the testimony. We have a
very distinguished line of witnesses. We have multiple hearings
all the time. The Appropriations Committee is meeting as we
speak on contracting in Iraq, and the Aging Committee is
meeting as we speak on key issues there. And it is a busy
place, and we have people who will be studying the transcripts
and staffers will be. So we thank you for coming, and I am
going to have to excuse myself.
Chairman Leahy. Thank you for mentioning that about the
other hearings. We all serve on half a dozen committees and
subcommittees, and it seems they always meet at once. I
especially wanted to be here for this one.
Ms. Osa Schultz is from Cordova, Alaska. As a result of the
Exxon Valdez disaster, the fishing cooperative, the very
successful fishing cooperative Ms. Schultz and her husband were
part of, was forced into bankruptcy. So she experienced
firsthand the devastation that the tragedy wrought on the
livelihoods and lives of so many in Prince William Sound. So we
welcome you here today. I know you are going to speak about the
community and how they were affected by this, and thank you for
making the trip to Washington. Please go ahead.
STATEMENT OF OSA M. SCHULTZ, CORDOVA, ALASKA
Ms. Schultz. Thank you. Mr. Chairman and Senators, thank
you for inviting me here today.
Given the many critical and consuming issues that you are
already faced with resolving at this time, I can barely express
how much I, the people of Prince William Sound, and the more
than 30,000 plaintiffs appreciate your serious review of this
case and the Supreme Court's decision.
It would be easy to assume that after 19\1/2\ years that
justice has taken its course, the facts have been weighed, it
is time to move on. But nothing could be further from the
truth.
Exxon would have everyone believe that they cleaned up
their mess and paid their dues for their wanton disregard of
safe shipping practices. When you look at the true and
verifiable facts, again, nothing could be further from the
truth. Exxon recovered less than 10 percent of the oil during
their attempted clean-up, and its victims have not been fully
compensated for their losses.
Exxon's vast power and influence has tipped the scales of
justice. Now the largest corporation in the world with their
inexhaustible resources, they have managed to draw this case
out with appeal after appeal for over 15 years. For nearly a
generation, our community has been the David to their Goliath.
I grew up in Portland, Oregon, and went to college in
Eugene at the State university. In the fall of 1979, I took a
quarter off to visit a friend who had recently moved to Alaska.
I was captivated by the town of Cordova and the incredible
wilderness that surrounds it. It was on this trip that I met my
future husband, Ric. Ric took me out gillnetting on his boat,
the Hypnotic. I was hooked--on fishing and the skipper! The
excitement, the beauty, and the satisfaction of catching the
bright, lively, and often elusive salmon was addicting. Ric and
I fished together for over 10 years and continued to invest in
our equipment to improve our fishing operation.
In 1982, we joined a group of over 75 fisher men and women
who had recently established the Copper River Fisherman's
Cooperative. The co-op encouraged improved fish handling.
Vessels started to carry ice to chill the fish in advance of
delivery and we used the practice of ``bleeding''--cutting the
gills to reduce bruising. Both are now standard methods in the
industry. We invested in significant advertising strategies for
our high-quality product and became the vanguard for fresh
salmon provided to a domestic market. By 1989, over one-third
of the gillnet fleet was supporting the Copper River Co-op.
The Exxon Valdez spill tore that investment to shreds. With
the sound unfishable and so many fishing boats working on the
clean-up, the co-op was forced into Chapter 11 and still has a
substantial outstanding loan. If the current ruling stands and
the interest is paid, each investor will stand to receive at
most only 45 percent of their original investment--for money
invested as much as 20 years ago.
The devastation caused by the Valdez spill continues to
this day. Without fish to send to the market, we lost our
niche; salmon from other sources replaced it. Even with years
of marketing strategy, we still struggle to get back to where
we were in 1988. In addition, one of the four local processors,
Chugach, went bankrupt as well--a facility that had the
capacity to process more than all of the other canneries
combined. As a result, in the following years when the fish
were being caught in high numbers again, we lacked the
processing facilities to handle them, and dollars that would
have been generated in Cordova were taken to other ports. Our
lives, the fishing community, and the economy of Cordova have
been devastated, and because compensatory damages were
calculated based on only a few years, Exxon stands to pay
pennies on the dollar.
I am not a lawyer, but I have read some of the briefs filed
in the Exxon v. Baker case. I urge the Committee members to
read a brief filed by four former Alaska Governors because it
lays out in painful detail the promises the oil industry made
in order to win approval for drilling in the Arctic and
building the Trans-Alaska Pipeline and the provisions made by
Congress to ensure that oil companies acted with the highest
degree of care.
Well, Exxon did not act with the highest degree of care.
Far from it, they acted recklessly. They knowingly put a
relapsed alcoholic behind the helm of a tanker navigating the
treacherous waters of Prince William Sound. That recklessness
ruined the economic lives of thousands of hard-working fisher
men and women. It caused the loss of traditional subsistence
resources that are the cultural backbone of the Native people
of Prince William Sound. It resulted in the total loss of our
herring fishery, once a vital keystone species to the region's
economy.
Exxon has delayed justice for nearly 20 years, and it seems
likely now to end up paying just a fraction of the damages they
actually caused. If our highest Court in America fails to hold
them accountable, how can they ever be forced to take
responsibility for their destructive actions?
I am just one person, but there are countless self-employed
people and small business owners like myself that struggle to
provide for our customers and support the infrastructure that
keeps America the incredible country that it is. The influence
of corporate power has become corrupt and divisive. Nowhere is
this more true than in the oil industry today. And no other
corporation is more accomplished at this corruption than Exxon.
The only way to get their attention is to significantly affect
their bottom line--Profit.
In setting a 1:1 ratio between the compensatory and
punitive damages, the high Court sends the wrong message.
Punitive damages are the only means by which citizens can
punish a corporation for wrongdoing. In its ruling, the Court
has said that the punishment should be equal to the losses of
the victims. As great as our losses are--and they are
substantial--comparing--sorry.
Equating punishment to a--equating punishment to a multi-
billion dollar corporation with the losses of self-employed
fishermen such as my husband and me is in no way punishment or
deterrent. And it is not justice.
I call upon this Committee to lead the way in ensuring that
no corporation can ever do again what Exxon has done to Prince
William Sound. In America, bottom-line corporate interests
should never trump the rights of individual citizens.
Thank you.
[The prepared statement of Ms. Schultz appears as a
submission for the record.]
Chairman Leahy. Thank you, Ms. Schultz. And from the
letters I have received and others on this Committee have
received, I think you speak for an awful lot of people from
that part of Alaska.
Ms. Schultz. I do.
Chairman Leahy. Our next witness is Professor Bartholet,
professor at Harvard Law School. She teaches civil rights and
family law. The professor also has extensive experience as an
arbitrator. She has worked with a number of arbitration
organizations, including the National Arbitration Forum. Her
experience as an arbitrator was featured in a recent
BusinessWeek cover story entitled ``Banks vs. Consumers (Guess
Who Wins).''
Professor, please go ahead, and thank you for taking the
time to be here.
STATEMENT OF ELIZABETH BARTHOLET, MORRIS WASSERSTEIN PROFESSOR
OF LAW, HARVARD LAW SCHOOL, CAMBRIDGE, MASSACHUSETTS
Ms. Bartholet. Thank you, Mr. Chairman, and thank you,
Senator Whitehouse.
My focus is going to be mandatory pre-dispute arbitration
in both the credit card and the employment areas. As you know,
this is a practice in which the big players--the banks, the
credit card companies, and employers--force upon the little
players--the people who want credit cards and want jobs--so-
called agreements to arbitrate. Now, these are not, obviously,
real agreements because those who want and need credit cards
and jobs have no real choice.
The practice of mandatory pre-arbitration is something that
the U.S. Supreme Court brought into being by its startling
interpretation of the Federal Arbitration Act, an
interpretation that was a complete surprise to many of those
who had taught or written in the area. It is an interpretation
that Congress is free to correct by corrective legislation.
I want to talk about two kinds of quite different problems
with mandatory pre-dispute arbitration. One is what I will call
the private justice or biased forum problem: the risk that the
big player gets the justice that he pays for, the results that
he wants, and the little player gets no justice at all. The
second problem is what I will call the private law problem: the
transformation of our civil rights regime, designed by Congress
to be important public law into something entirely different,
something that fails to serve any public law function.
So, first, the private justice or biased forum problem.
This arises from the nature of mandatory pre-dispute
arbitration. The big player selects and pays the arbitration
provider. Arbitrators only get paid if they get selected to
decide cases, unlike judges. The big players, because they are
repeat players in the system, are in a position to strike
arbitrators who do not decide for them and, thus, to choose the
arbitrator, who is, of course, supposed to be unbiased.
My experience serving as an arbitrator for the National
Arbitration Forum, NAF, is telling, but it is only one of
several troubling experiences that I have had as an arbitrator
during the nearly three decades that I have so served. My
arbitration experience with NAF began in 2001, when I agreed to
be on a roster of arbitrators, knowing very little about what
they did. I then discovered that they have locked up basically
the credit card arbitration business of the country.
Out of the first 19 cases that I was assigned by NAF, I
decided 18 for the credit card company because it appeared that
debts were indeed owed, and I dismissed one case. After those
19 cases, I decided one case in which the alleged debtor
happened to be a lawyer and asked for a hearing. Not a single
person before this case had asked for a hearing. This alleged
debtor also made a counterclaim against the company, claiming
that he had been significantly damaged by the whole process,
which included damaging his credit rating.
In the end, after hearing the case on the merits, the first
case I heard on the merits, I ordered the credit card company
to pay this alleged debtor some $48,000 and, of course,
wondered to myself whether I would ever see another NAF case.
I saw four more apparently because in the next four cases
it was too late for either side to exercise what NAF has in its
rules as a peremptory challenge--a challenge without cause. Of
these cases already in the works, I decided two that involved
the credit card company which had been involved in all prior 19
cases.
In the next 11 cases after that, all involving the same
credit card company, I was not allowed to decide a single case.
The company removed me by peremptory challenge in seven cases,
and they moved to dismiss in the remaining four cases,
dismissal giving them an opportunity to get the case before
another arbitrator. They simply needed to refile it.
In the first three cases in which I was removed, NAF sent
me copies of a letter that had been sent to the parties falsely
informing the parties that I was unavailable because of a
schedule conflict. Now, if a party is to have any opportunity
to challenge the arbitrator for bias, they would like to know
if a prior arbitrator has been dismissed for some reason. So
this false information going out telling people that I had
withdrawn because of a schedule conflict seemed to me a pretty
major problem.
At that stage, immediately after getting those misleading
letters and after having been disqualified for several cases, I
attempted to discuss with NAF personnel--and I discussed with
personnel on two levels--the problems I saw with the fairness
of their system and got no satisfaction. At that point, I
resigned from the NAF roster of arbitrators with a letter
stating that the reason for my resignation was my concern about
the NAF system's ``apparent systematic bias in favor of the
financial services industry.''
After that, NAF did its best to silence me from telling any
part of this story. A party who had a dispute which, by
contract again, was supposed to be in the NAF forum, wanted to
prove that the NAF forum was biased. Now, what the Supreme
Court has told us, of course, as part of the guarantee that
arbitration will work okay, is that people will have an
opportunity to prove bias in the forum if there is any such
bias. So this party wanted to prove bias and felt they needed
my testimony because they had heard about my story. They wanted
my testimony to try to prove bias.
At that point, NAF tried to prevent me from testifying.
They moved to quash the discovery deposition. They claimed that
the confidentiality provisions in my original assignment
agreement with NAF, which I had terminated, barred me from
testifying, even as to general matters relating to bias in
their arbitration system. Obviously, I had told them I was not
going to testify to anything with respect to parties or cases.
Although I believed the NAF claim to be entirely frivolous,
I felt forced to hire a lawyer to protect myself. In the end, a
Massachusetts court found that nothing in my agreement
prevented my testifying about bias in the NAF system and
ordered me to testify.
I concluded from my experience that the NAF pool of
arbitrators is likely to be overwhelmingly stacked against the
consumer, with arbitrators either being systematically removed
if they rule against the credit card companies, or arbitrators
feeling pressured into always ruling for the credit card
companies out of fear of removal.
This, together with my other experience as an arbitrator
and reading of the literature, leads me to believe that the
Supreme Court's approval of mandatory pre-dispute arbitration
has given banks and credit card companies a private justice
system in which they can purchase the results they want, at the
expense of the debtors forced into the system.
I want, much more briefly, to address the second problem,
which I have called the private law problem. This problem is
illustrated in the employment discrimination area, which is an
area where I have taught for three decades and developed
growing concern with the impact of mandatory pre-dispute
arbitration, both because of the bias problem just discussed
and because of the private law problem. And I want to emphasize
that these are two independent problems. Even if the bias
problem were to be solved, arbitration is incapable of
providing the kind of public law that I believe Congress
intended when it passed the panoply of civil rights legislation
that includes Title VII, the Age Discrimination Act, and the
Disabilities Act.
The Supreme Court in the 1960s, 1970s, and early 1980s
treated this law as important public law. By ``important public
law,'' I mean law intended to have an impact on society in a
far-reaching way. I mean what the Court did when they provided
victorious plaintiffs with attorneys fees, with the idea that
they should act as private attorneys general. I mean the class
actions that enabled thousands of class members to get relief
who would have been unable to get relief otherwise. I mean the
systemic proof that class actions and broad discovery enabled.
And I mean the systemic theories like the disparate impact
theory. And I mean the public decisions which educated
employers across the land--
Chairman Leahy. Professor?
Ms. Bartholet. Yes?
Chairman Leahy. I am going to put your full statement in
the record because we want to leave time for questions in case
we have to get interrupted by votes. If you want to make a
conclusory--
Ms. Bartholet. I will make a very conclusory statement,
which is simply that in arbitration, none of this public law
exists. Arbitration is designed for two individuals to solve
little tiny problems very quietly. And it is incapable of--and
this is exactly why employers are flocking to arbitration--it
is incapable of implementing public law.
I think that because of this, these mandatory pre-dispute
arbitration decisions of the Supreme Court are the single most
important and devastating decisions issued by the Court in the
last three decades in terms of the rights of plaintiffs.
Thank you.
[The prepared statement of Ms. Bartholet appears as a
submission for the record.]
Chairman Leahy. Thank you very much.
Patricia Ann Millett is a partner at Akin Gump Strauss
Hauer & Feld, here in Washington. She co-heads the firm's
Supreme Court practice. From August 1996 to September 2007, Ms.
Millett served as assistant to the Solicitor General at the
Justice Department, had experience that most lawyers would
envy. She has argued 26 cases before the Supreme Court.
Thank you for being here, Ms. Millett, and please go ahead.
Is your microphone on? There you go.
STATEMENT OF PATRICIA ANN MILLETT, PARTNER, AKIN GUMP STRAUSS
HAUER & FELD LLP, WASHINGTON, D.C.
Ms. Millett. Thank you, Mr. Chairman, Senator Whitehouse,
and other Members of the Committee for inviting me here today.
It is a real privilege.
Before I start, I just want to make clear that I am
speaking in my personal capacity. I am not here as a
representative either of my law firm or any particular client,
and that makes sense because, as Senator Leahy pointed out, I
have only been in private practice less than a year. Most of my
observations of the Supreme Court and its decisionmaking are
based on the 11 years I spent in the Solicitor General's office
under both the Clinton and Bush Administrations.
I understand that two areas of interest for the Committee
are arbitration and punitive damages, but I think it is very
important in understanding what is going on in the Supreme
Court to take a broad overview of the Term. Just as one cannot
assess what this Congress has accomplished in a session by
looking at one law or two, one needs to look at everything the
Supreme Court did over a Term to assess what is going on there.
And when you look at business cases from this last Term, they
came down almost 50/50 between pro-business and pro-employee,
or anti-business, however one wishes to characterize it.
The theme that I saw in those decisions that I think is
most relevant for this body is the enormous deference to
Congress. There were a lot more statutory decisions, and what
the Court made clear was that it was taking the statutory text
that this Congress enacts at its word and was going to
implement it. And if things are incorrect, it will leave it to
this body to change it because that is the role that the Court
should play. The Court in areas of statutory construction
should follow, not lead.
The Court also expressed important adherence to principles
of stare decisis. There was concern that it would overrule
precedents from some prior terms, in particular some precedent
where Justice O'Connor had been the fifth vote, and that
inspired discussion that this is the chance now for the new
Roberts Court to overturn the rulings. They did not do that.
They adhered closely to stare decisis, which means in the
statutory area that when the Court makes a decision, if the
Congress does not react and Congress goes along with the
decision, does not change the law, then it is not for the Court
itself to change course later in time without Congress' lead.
The other thing that is of interest, I think, is that there
was broad consensus in the business area. The Court was more
unanimous there than any of the other areas of law that it
addressed, and it had only two 5-4 decisions, and they were in
relatively obscure areas of the law--one involving the standing
of assignees for collection, and one involving the rights of
tribal courts to regulate non-Indians and the disposition of
land that they hold.
In the area of employment rights, employees this term won
four of five cases and essentially came to a draw with business
in the fifth case. The Court upheld in two different cases the
protection of civil rights laws against not just core
discrimination, but retaliation by employers against the
exercise of those rights. And that is very important because a
right does not mean much if you are not protected against being
punished for asserting your rights.
They also adopted, in a case called Meacham, a strong rule
in support of employees on the burden of proof for the
``reasonable factor other than age'' issue in age
discrimination cases.
In Federal Express v. Holowecki, they adopted a pro-
plaintiff rule on what it takes to trigger EEOC investigation
of a claim.
In a case called Sprint v. Mendelsohn, they essentially
said that there is no per se rule against the introduction of
what is known as ``me too'' evidence in discrimination cases.
``Me too'' evidence is when the employee wants to introduce
evidence that other employees have been discriminated against
by other supervisors, not involving their particular
discrimintory event, but obviously showing a broader atmosphere
within a corporation.
The Court also addressed a number of preemption cases, and
I do want to clarify one thing, I think, in my written
statement. I left out the Chamber of Commerce v. Brown case,
which was another preemption case the Court addressed this
term. The Court was fairly consistent on ruling in favor of
preemption, although it rejected a preemption argument in the
Exxon case, and in that aspect ruled in favor of the
plaintiffs. But, again, what is interesting about the
preemption cases is even broader unanimity. One of them was 7-
2; Riegel v. Medtronic, involving medical devices, was 8-1; two
more were unanimous. And so what that means, I think, combined
with a broad consensus that we saw in the employment right
cases, is that in a lot of these areas of business, this is not
a Court where one or two Justices are going to change anything.
There is a lot of consensus that one does not always see in
other areas from the Court.
In the area of arbitration, which I know this Committee is
interested in, the Court decided two cases this term. One was
called Preston v. Ferrer. That was decided 8-1 by the Court,
and all it held was that, where arbitration has been agreed to
by parties, there would not be a diversion to State
administrative procedures. What the Court did there was simply
apply what it had held in prior cases, holding that you do not
get diverted to State courts when you have an arbitration
agreement, and that there would not be a distinction for State
administrative procedures. So, again, the Court simply applied
prior precedent that preceded the Roberts Court and left it to
direction from this body before it would change course.
And then in a second case called Hall Street Associates v.
Mattel, the Court held that parties to arbitration cannot
simply contract out of the statutory standards of review set by
the Congress in the Federal Arbitration Act. That was a 6-3
decision. And in so holding, the Court again looked closely at
the directive language of the statute itself, a statute that
said that arbitration decisions must be enforced unless
particular categories of exceptions delineated in the statute
were satisfied. And the Court specifically voted that policy
arguments were presented, but said those were for this body and
not for the Court.
The last case I want to mention, is the Exxon case, the
punitive damages case, which is obviously an incredibly
emotional subject for many Americans. I think it is important
to keep in mind what exactly was decided in that case. What the
Supreme Court decided in a 5-3 decision written by Justice
Souter was that, as a matter of admiralty common law, there
would be a 1:1 ratio for punitive damages. There was no
constitutional ruling, no constitutional question in the case.
The Supreme Court opened this aspect of its ruling by noting
that it had a common law job to do, but Congress could change
the decision.
What the Court emphasized most that it was looking for in
the area of punitive damages was some predictability and
consistency when it adopted the standard for punitive damages,
just as Congress itself had required such consistency across
criminal defendants in the United States Sentencing Guidelines
and has set particular penalty ratios in many statutes. And the
Court emphasized that, because this was a case where the action
was found to be non-intentional, and there was not proof that
Exxon had profited from the activity, that a 1:1 ratio would be
appropriate. The Court left open whether a different ratio
would be appropriate in a case where there was intentional
conduct or conduct that was taken with a specific profit motive
in mind.
The conclusion, again, is that this Court in the business
area, as in other areas, is demonstrating broad consensus. This
is not the area of the controversial 5-4 decisions that one
hears about in the press. And they are taking small steps and
following paths that have already been laid out by prior
precedent, deferring substantially to the Congress in statutory
areas.
Again, I think one should keep in mind in characterizing
the Supreme Court, if I could just say lastly, that slightly
over half of the cases were decided this term in favor of
business. They decided more cases in favor of criminal
defendants than they did in favor of business this term. But no
one wants to characterize it as a pro-criminal defense Supreme
Court.
The important message is to look at everything in context
and look at an overall view of the Supreme Court's term, and I
think it shows a fair amount of balance in the business area
this term.
Thank you.
[The prepared statement of Ms. Millett appears as a
submission for the record.]
Chairman Leahy. Thank you very much. I am going to have to
be here, and I know others are going to have to leave, so I am
going to yield first to Senator Whitehouse for questions. But I
am going to put in the hearing record written testimony
submitted by Simon Lazarus of the National Senior Citizens Law
Center; Jocelyn Samuels of the National Women's Law Center; and
Doug Kendall of the Constitutional Accountability Center; and
several fishermen and Native Alaskans affected by the Exxon
Valdez disaster.
Senator Whitehouse.
Senator Whitehouse. Thank you, Chairman.
Ms. Schultz, thank you very much for being here. It makes a
big difference to us, dealing with what are often very kind of
processy and legalistic and legislative issues, to hear from
people who have been affected so directly and who, after--how
many years since--
Ms. Schultz. Nineteen and a half.
Senator Whitehouse. Nineteen and a half years, still feel
that the justice system has not served them and has instead
been far more beneficial to the big corporation at fault in
this. And the question of the big corporation being at fault,
one of the phrases that stood out to me in the Supreme Court's
opinion was that the Supreme Court said it found ``no earmarks
of exceptional blameworthiness on the part of Exxon.'' And it
was very much that determination that there were no earmarks of
exceptional blameworthiness on the part of Exxon that drove the
decision. In fact, it appears that if they had found earmarks
of exceptional blameworthiness, the rule might have been
different. That is where the standard cuts off.
So I am just wondering--I have not been up to see the
damage. You have lived with it for 19\1/2\ years. Did you see
any earmarks of exceptional blameworthiness in what took place
and what led to the destruction of your co-op?
Ms. Schultz. Absolutely. The main thing is the loss of the
herring fleet and the loss of the herring fishery, because that
was a keystone species. It started our season in the spring.
That is where the fishing activity started rolling. That is
when the town came alive. The work that was done on that
fishery got everything financed because of that income. That
was a third of the fin fish collected income for the season. It
is gone completely. And it was not until just recently that
science has been able to prove that it was a result of the
spill. So that is why there was not any substantial evidence
for the court case in 1994.
Senator Whitehouse. Professor Bartholet, it strikes me that
the jury system in our governmental structure, our
constitutional structure, has a significant governmental role.
It is not just there as a means for adjudication of disputes,
at least in my view. I see it as a vital part of what the
Founders saw as popular Government. And as I look around
Washington and see the extent to which, you know, money flows
in this town and vested interests have huge throw weight, we
have an executive administration that often seems, at least to
me, to be in the pockets of certain industries, and I doubt
that the Founding Fathers were blind to the possibility that
the executive branch or the legislative branch could become
enthralled to special interests. And it strikes me that in that
context, the independent jury system of people chosen at random
from the community to stand up for a real sense of justice was
sort of the last bastion of true democracy and a core piece of
the popular input that makes American democracy. And yet I see
it constantly under assault and getting very little of the
respect that other institutions of Government ordinarily
obtain. And I just wonder if you would comment on those
observations.
Ms. Bartholet. Well, certainly one of the many important
rights that mandatory arbitration takes away is the right to
the jury trial, so that when you are forced into arbitration by
the kind of agreements that the Supreme Court has now approved,
people lose their right to a jury trial. I do think that is
important. However, I would say it is simply one of a range of
hugely important rights that are lost. I think the right to an
unbiased judge is also important, and I think that is gone with
mandatory pre-dispute arbitration. I think the right to a judge
or an arbitrator who actually understands the law--you are not
going to get arbitrators who understand sophisticated
employment discrimination theory. So--
Senator Whitehouse. Before my time runs out, which it is
about to, let me jump into the peremptory challenge rule, which
strikes me as institutionally biased when you are dealing with
repeat players. The credit card companies keep coming back and
back and back and back again. They wrote the contract. They set
this up. They are there every time. And the individual
litigants, if you will, the supplicants, if you will, are there
just that one time. And they have no real idea who is for them
or who is against them. They have no institutional or vested
interest in striking anybody. And so it looks as if a very,
very significant permanent bias has been deliberately built
into the system. And I am wondering if you would evaluate that
in the light of laws that we have, frankly, against outright
rackets and schemes and artifice to defraud. Because it strikes
me that if you deliberately set up a mechanism whereby one side
has the ability to twist the system so that they win, and you
then sell it to people as a fair arbitration, somebody is being
defrauded out there, and I am wondering if you have considered
it from a civil or prosecutive point of view.
Ms. Bartholet. I would agree with you that it is a racket.
I think this system is completely stacked to simply benefit the
credit card companies. And peremptory challenge can sound fair
to people because, yes, it is a typical thing that exists in
our court system. But it is very different when, as you say,
there is a repeat player and the little guy does not have a
lawyer, does not know the system, does not know who has been
disqualified before or who might have ruled for the credit card
company before.
Senator Whitehouse. And does not repeat.
Ms. Bartholet. The additional problem here is the financial
pressure that arbitrators are under, so most arbitrators,
unlike me, do arbitration as their main livelihood. Sometimes
it is 100 percent of their income, or it is most of their
income. For me, it was 1 percent when I was working for NAF. My
NAF income was 1 percent.
If you depend on your livelihood for these cases and you
know one side is going to use its peremptory challenge to get
rid of you if you displease them--and that word is out. I mean,
I learned it and can testify about it. But the word is out. I
mean, to me, one of the really shocking things is that when I
told my story to people in the American Bar Association, on
arbitration committees, talked--you know, people know this
system is stacked, but nobody is doing anything about it.
Senator Whitehouse. My time has expired. Thank you very,
very much.
Chairman Leahy. Thank you.
Senator Cornyn.
Senator Cornyn. Thank you, Mr. Chairman, and thanks to each
of the witnesses for being here.
I wonder, Ms. Millett, I see that you have argued before
the U.S. Supreme Court as an assistant to the Solicitor General
during both the Clinton and the George W. Bush Administrations.
Could you tell the Committee of your impressions of whether the
way the Court has handled its docket, the way it has conducted
its business has been, in your view, dramatically different or
not as compared to those--comparing those two administrations?
Ms. Millett. Thank you. I have seen very little change,
certainly no dramatic change at all. There are little things
that would be of no interest to the Committee but that are of
interest to people who argue in the Court about how Chief
Justice Roberts conducts the courtroom. But, overall, if
anything, there is, as expressed this term, really strong
allegiance to stare decisis in the statutory area and to
following Congress' lead when it writes a statute, giving full
effect to the terms of the statute, and to not jumping ahead
and overruling precedents. They were very firm about that this
term.
But, overall, I think statistically is there a big
difference? No. If there is any big difference, it is the fact
that they decided 58 percent of their cases in favor of
criminal defendants this term, fewer cases in favor of
business. But, overall, there has been no dramatic change.
There are small ups and downs, and that is the way the Court
has always been. It is a reactive institution. It does not go
out like Congress and find issues. It waits for people to bring
issues to it. And some terms it has more of one issue than
another, and that is why it is very important to look over time
at the Court's operation.
Senator Cornyn. Some, including me, have been very pleased
with the elevation of Chief Justice John Roberts and Justice
Samuel Alito. Have you noticed from any empirical evidence any
dramatic changes in the way the Court approaches its business
as a collegial decisionmaking body or the outcomes since those
two Justices have been elevated to the Court?
Ms. Millett. This term saw a fair amount of unanimity,
particularly in the business area. It goes beyond their two
votes. As I said, a number of the cases are coming down 8-1, 7-
2 in the business area and elsewhere. But what I saw this term
that I think was most interesting was that you saw--on hot
button issues like the death penalty, the lethal injection
case, or the voter ID case that the Court addressed this term,
where one might have thought before you would have 5-4
decisions or splintered decisions, we actually saw broader
consensus with 7-2 and 6-3 decisions from the Court. I think
part of that is because Chief Justice John Roberts and Justice
Alito have made clear their allegiance to principles of stare
decisis and to a limited role for courts, taking small steps
and incremental measures. And Justice Stevens and some of the
other Justices--sometimes Justice Souter, sometimes Justice
Breyer--have joined in that.
Now, this is not universal. There are still controversial
decisions. But--
Senator Cornyn. That will always be the case, I guess by
definition, as those are the cases that make their way to the
U.S. Supreme Court. But I agree with your comment about the
apparent influence of Chief Justice Roberts in particular, and
not to take anything away from Justice Alito, but since Chief
Justice Roberts is the Chief, it does appear that there are
more consensus decisions and not as many 5-4 sharply divided
decisions on the Court, or at least that is my impression.
But I am sure that with any court you are going to find
cases that you agree with, outcomes you agree with, and that
you disagree with. As far as I am concerned, the Court was
about batting .500 over the last few decisions. The Boumediene
decision I thought was moving the goalpost right after the
Court told Congress it needed to be involved in the process of
creating--of setting out detainee rights and creating a
military commissions process, and then we did so, and then the
Court came back, moved the goalpost, and Justice Kennedy's
opinion I thought really represented an overreach by the
judiciary on what should be the job of the executive and
legislative branches.
Again, in the Louisiana child rape case, where the Court
talked about emerging consensuses with regard to views of
capital punishment and apparently missed the fact that the U.S.
Congress had passed the death penalty for child rape in some
instances and just flat did not even note that fact in talking
about its consensus. I mean, the Court is--there are always
going to be decisions that we agree with and disagree with,
which is our right. But ultimately in our system it is the
Court that makes the final decision, at least until Congress
then comes back and changes the statute, if it is a statutory
interpretation, or the people decide then in the Constitution
to come out with a different outcome.
I want to ask--Professor, I know you are critical of
mandatory arbitration provisions in contracts, but I want to
ask you a little bit about the history of alternative dispute
resolution. I remember that Chief Justice Burger, in
particular, was critical of the delay and the expense to
ordinary litigants in litigation and worried that that might be
just as an effective bar to access to justice as anything else.
And so the legal profession, working with the judiciary, came
up with a system of alternative dispute resolution, which I
concede is not perfect any more than our system of deciding
cases by litigation, ordinary litigation, is not perfect. But
it was an attempt to try to address those concerns about the
delays and the cost of access to at least some impartial
tribunal.
Do you agree that that is important to try to find
mechanisms, if we can, that can provide access to an impartial
decisionmaker that costs less money and reduces the time that
could be otherwise consumed in ordinary litigation?
Ms. Bartholet. Absolutely. I am a fan of ADR, which is part
of why I have served as an arbitrator for almost 30 years. But
there is an enormous difference between mandatory pre-dispute
arbitration and post-dispute arbitration where the two parties
genuinely agree to have arbitration. When they make a genuine
agreement like that, the alternative is to go to court. In
mandatory pre-dispute, it is all in the hands of the big player
forcing it down the throat of the other, and it is in the hands
of the big player to design the process, pick the arbitration
provider, and ensure the kind of biased outcome that I think my
experience with NAF illustrated.
Senator Cornyn. So you just think the fix is in and there
is no such thing as an impartial decision by an arbitration
panel?
Ms. Bartholet. No. I just said that I believe in ADR, and I
think there is a huge difference between mandatory pre-dispute
ADR and authentic ADR, if you will, that if two parties
genuinely agree to do arbitration, it is a completely different
matter.
Senator Cornyn. I see my time is up.
Chairman Leahy. Thank you.
Now, Ms. Millett, I should point out--Senator Cornyn has
mentioned the cases on the military commissions. There are some
of who feel that when the Supreme Court stands up for the
Constitution, they are not really moving the goalpost. But I do
take your point that corporations have lost some cases in this
term along with big cases that they have won. My only concern
is the trend and its effect on ordinary Americans. In a lot of
terms, the Supreme Court has ruled with the Chamber of Commerce
70 percent of the time when they filed a brief. Now, that
number by itself does not mean that they are wrong. But I
wonder, when you look at the 19-year litigation ordeal that Ms.
Schultz went through, or the arbitration process that the
professor has talked about, does that sound fair to you?
Ms. Millett. To be clear, this term the Supreme Court ruled
in favor of the Chamber of Commerce--only about 50 percent of
the time, not 78 or 80--
Chairman Leahy. I was talking about the last two terms.
Ms. Millett. Well, the last term was about--I guess if you
average them, I suppose--I am not good at math. Is that 68 or
60-something percent? It has not been 80 percent over the last
two terms.
Chairman Leahy. Seventy. I said 70.
Ms. Millett. I am sorry if I misunderstood, but I want to
make clear that this term business sort of won as much as it
lost. And I think questions of fairness are at some level
policy questions. What the Supreme Court was doing in these
cases was applying statutory text that was enacted by this
body, signed by an assortment of Presidents, and adhered to its
stare decisis rule in the statutory area, which is that
Congress leads and the Court follows. A lot of these decisions,
especially the arbitration decisions, have their roots back 10
to 20 years. All they did this term in arbitration were very
narrow applications of what had already happened before. So I
think--
Chairman Leahy. Of course, there are cases where one would
argue that they did not follow the Congress's lead, the
Ledbetter case being an example of that. Many feel that not
only the congressional--not only the legislation, but the way
that legislation has been interpreted was not followed by the
Court.
Ms. Millett. The Court does not always get it right. I am
not here to say that they do, and people will think different
ones are wrong and different ones are right. As a woman, I have
enormous sympathy for Mrs. Ledbetter and an understanding of
how difficult it is for someone faced with discrimination to
realize it and to have the courage to bring a complaint. It
affects their livelihoods. Part of that problem may also be it
is good to have a Supreme Court that has people who come from
different backgrounds and different experiences.
Chairman Leahy. Well, you preach to the converted there. I
have recommended to the last four Presidents that they go
outside what I call the ``judicial monastery'' and pick
somebody--I have done this with both Democratic and Republican
Presidents, recommend they go outside the judicial monastery
and pick somebody more in the real world. When I hear members
of the Supreme Court talk about, well, if somebody can just
take the time to do this or take the time to do that, these are
people that could plan something for 2:30 on June 12th 2 years
from now and know they could do it. Most people in real life
cannot plan something for 2:30 this afternoon. It is things
like that that are of concern.
The Exxon decision, I was concerned that what they are
saying is that the corporations have to be able to predict
punitive damages. I am more concerned about the rights of
people. I look at what Ms. Schultz has said. They found damages
after 19 years of this on something where the Exxon Valdez and
the corporation were totally at fault. I think everybody agreed
with that. Your losses that you have suffered are not covered
by that decision. Is that correct, Ms. Schultz? I am speaking
about you. I mean you and the others in a similar position.
Ms. Schultz. The compensatory damages were calculated for
the first 1 to 3 years, and they did not foresee how long it
would take our fishery to recover or that the herring would not
come back at all. And it also excluded a lot of claims, for
instance, the devaluation of vessels and permits owned by
fishermen which fell 60% or more. These investments represented
the equity that people had. It was their retirement. And it
just disappeared and it was never in any way compensated for.
Our attorneys told us the punitive damages will take care
of that, don't worry about it. And now with the reduction not
only from the original case in 1994 being from $5 billion, down
half, and then down to a tenth, it has left us with nothing.
Chairman Leahy. Professor, is there any doubt in your mind
based upon misleading letters that NAF sent to parties about
your unavailability, as you have testified, the unsatisfactory
explanations you got from their legal counsel, that you were
prevented from deciding cases because you ruled once out of 19
cases against them? In other words, you were not one who could
be seen as every single time ruling with them? I am not trying
to put words in your mouth. I will let you explain it the way
you want.
Ms. Bartholet. There is no doubt in my mind, and indeed
when I said to the two staff people with NAF that this was what
I had to assume was the reason for my disqualification, one of
them agreed with me, and the other one did not deny it.
Chairman Leahy. I am thinking when Professor Robert
Lawless, who testified in our first hearing, in this series of
hearings on Supreme Court decisions, he talked about the
National Arbitration Forum. He said, ``Arbitrating a debt
collection bypasses the normal procedural safeguards that a
court proceeding will give, and before the NAF, the debt
collector will almost always win. According to the San
Francisco city attorney, in 18,075 cases, the NAF ruled against
consumers in 18,045 of them.'' Professor Lawless suggested they
are acting more as a debt collector than an arbitrator. Would
you agree?
Ms. Bartholet. Well, yes, although I think there is nothing
necessarily wrong with debt collection cases, and I will point
out that I myself ruled almost all the time, 18 cases, for the
credit card company. So I think there definitely are valid
claims that can be brought to collect debts, and I do think the
statistics do not tell the full story in that sense that it
makes it perhaps look--well, I think the importance of my story
really is that it gets beyond the statistics, because you might
well have a fair system in which credit card companies would
win most of the time. And I think you have to get beyond just
the statistics to understand why the system is intrinsically
unfair.
Chairman Leahy. Might they feel more--might people feel
happier about the arbitration system if they felt they had a
real choice in whether to go before arbitration or not?
Ms. Bartholet. I think they would not only feel happier,
but they would get a--they should feel happier because they
would get a different brand of justice, that if they were in a
position after they had a dispute to decide whether or not to
agree to arbitration, then the other side would have to be
offering them an arbitration system that was a fair deal as
compared to going to court.
I mean, again, I am not a defender of the court system. It
is in many ways too expensive, takes too long; there are lots
of problems with it. So there may well be lots of times when it
is better for consumers to have an arbitration system, and that
is why, you know, if you banned pre-dispute arbitration--
Chairman Leahy. What you are saying is give them a choice.
Ms. Bartholet. Give them a choice, and then you will get a
better brand of justice.
Chairman Leahy. Thank you.
Any other questions? If not, we have another hearing.
Senator Cornyn?
Senator Cornyn. If I could just ask questions on another
brief area, Mr. Chairman.
Chairman Leahy. Of course.
Senator Cornyn. Thank you very much. While we are all
concerned about the fairness of our justice system, I want to
just ask a couple of questions. I have introduced legislation
that would address abuses by securities class action counsel,
basically breaching their fiduciary duty to the members of a
class by not keeping them fully informed or by perhaps even
paying kickbacks to the class counsel. Of course, this followed
on the heels of a couple of high-profile scandals involving
Melvyn Weiss and William Lerach for which they ended up going
to prison.
What was so shocking, I think, about that was that the Wall
Street Journal reported that Mr. Lerach, when he was confronted
about his conduct, he said, ``Believe me, it was industry
practice.''
And the Washington Post editorialized in response to the
scandal that ``what is needed now is a sober discussion about
how best to achieve a fair, more balanced legal system through
comprehensive tort reform. . . . Smart and ethical
businesspeople and lawyers--and, yes, there are many who fit
the bill--would be wise to start working together to craft such
a fix.''
The Dallas Morning News in my home State called the scandal
evidence of ``one of the dirty little secrets of securities
fraud cases--kickbacks and other secret arrangements that
provide a pile of cash to lawyers and far less to the
supposedly defrauded ordinary investors.''
And I would just ask Ms. Millett, is this an area that you
think would be worthy of Congress's scrutiny, perhaps even
holding hearings to look at whether there are things we might
be able to do to help make sure that when securities class
action litigation is initiated, that it actually benefits the
class members, the defrauded investors, and not just the
lawyers who bring the lawsuits?
Ms. Millett. This is not my area of expertise, but I do not
think anyone, certainly any lawyer, could be opposed to efforts
to make lawyers and the legal system be responsive to the
people it is supposed to serve. And it is always an
embarrassment to me as a lawyer when things like this come out,
because I believe very highly in the integrity of our
profession and of our court system. And so I think certainly
when problems arise, it is very important for this body to look
and to examine those, and those kinds of measures are what the
Supreme Court then follows. The Court cannot solve these
problems alone. It can only deal with the cases that come to
it. It is for this body to deal with the more intrinsic
problems. Beyond that, I am not an expert to know the details
of it one way or the other, but no one can be opposed to making
lawyers and the system more responsive to the people it serves.
Senator Cornyn. On the panel, you have two former Attorneys
General and a former prosecutor, and it would be my hope that--
you know, certainly we all as members of the profession do not
believe that all lawyers are bad.
Ms. Millett. I hope not.
Senator Cornyn. Most lawyers in my experience do try to
practice in an ethical and upright way, but I think this is an
area that would certainly be worthwhile to make sure that the
persons for whom the litigation is brought actually benefit and
not just a lawyer who is engaged in perhaps unethical or even
illegal activity.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you, and we will keep the record
open. You will see your transcript, and if you look at it and
think, ``I should have added'' whatever, obviously we will
leave it open for that. I appreciate all three of you taking
this time to be here. We are not trying to play a game of
``gotcha.'' If you want to add things to it, feel free, and I
will also hold it open if others want to ask questions.
I thank you for taking the time. We have hundreds of
hearings going on on the Hill every day, and I always feel so
gratified that people take time from their own busy lives to
come here to testify. It means a lot to all of us.
Senator Cornyn, I thank you, and, of course, Senator
Specter and Senator Whitehouse, and the others and their staffs
who will have questions.
Thank you very much. We stand in recess.
[Whereupon, at 11:20 p.m., the Committee was adjourned.]
[Questions and answers and submissions follows.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]